CNBC's Jim Cramer said Tuesday's sell-off was a result of poor judgment on the part of shareholders.
"The market won't bottom all at once — there will be some stocks that will bottom tomorrow — but I think this is a sell-off based on bad judgment, not bad earnings or a bad business environment," he said. "And it will be cured by the departure of those bulls who got caught offsides, who'll now be pulled from the lineup and sent back to the sidelines, where they can earn their 5% while they break form and do some much-needed homework."
After a hotter-than-expected consumer price index, the Dow Jones Industrial Average lost 1.35% by the close, marking its worst session since March 2023 on a percentage basis. The S&P 500 declined 1.37% and the Nasdaq Composite slid 1.8%.
The overheated CPI number led to poor decision-making by shareholders, Cramer said, many of whom put too much faith in the idea that the Federal Reserve would be ready to cut interest rates in the spring.
Other bullish investors stirred up market froth, buying up many tech companies with unclear business plans, he said. An extreme example of this froth was the action behind semiconductor outfit Arm, whose post-earnings rally from last week extended into this week.
In theory, Cramer said investors would be wise to sell some stock here and then buy it back at lower levels, but admitted that plan is difficult to execute in practice.
"The market can't advance on froth without terrible consequences," he said. "We go to drain the froth and refresh, and that's what today was, as those who don't know anything about the economy or their stocks get cashiered out of the market."
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